Monday, July 25, 2011

Substitution as per contract terms was not infringing

Suntree sued its competitor and its competitor’s president for trademark infringement, false advertising, and deceptive/unfair trade practices. Wait ‘til you hear why.

The parties produce baffle boxes, which are stormwater treatment structures. In fall 2008, the City of West Melbourne began soliciting bids for a project that required nine baffle boxes. The specifications required that the boxes used either be Suntree’s “or equal” to Suntree’s. The project documents explained that this provision was "intended to establish the type, function, appearance, and quality required" for the baffle boxes. For a baffle box to be deemed equal, a request for approval had to be submitted by a defined process, and the box had to be approved by the project engineer.

A company called Derrico submitted a bid listing Suntree as the proposed baffle box supplier. Derrico won the contract and then sought approval to use the EcoSense box. The project engineer spent about forty hours analyzing EcoSense’s box and determined that, as a technical matter, they’d function the same, and he approved the substitution. At some point thereafter, Carolina Alvarez (presumably a city employee) requested that EcoSense create a presentation to show proper cleaning and maintenance procedures for baffle boxes. EcoSense put together a presentation including pictures of staff cleaning various baffle boxes, which it obtained by following the City of Rockledge’s maintenance crew around. EcoSense used Rockledge because it had a good relationship with the city, knew the city had a good maintenance crew, and its office was very close to the city. Because both parties’ baffle boxes are installed in Rockledge, the presentation included pictures of both parties’ products, but the presentation didn’t use Suntree’s name or logo. EcoSense gave the presentation to West Melbourne and the City of Titusville, two customers, and had the presentation on its site for at most a month. In addition, during the course of litigation, EcoSense found an old product brochure containing a single picture of a Suntree baffle box, and immediately destroyed all copies except one exemplar for litigation purposes.

Suntree alleged contributory and direct unfair competition/trademark infringement. (1) Suntree claimed that Derrico infringed its trademark by listing Suntree as the proposed provider on the bid form even though it planned to substitute with EcoSense. Suntree then claimed that defendants induced the infringement by supplying Derrico with baffle boxes even though they were aware of these allegedly infringing actions. (2) Suntree claimed that defendants directly infringed in the maintenance presentation and product brochure, which also allegedly constituted false advertising.

As usual, the state law claims have no separate legal theories and can safely be ignored.

Contributory infringement requires primary infringement, and then intentional inducement or knowing participation in an infringing scheme.

The court commented that Suntree didn’t claim that the city infringed by listing Suntree as its preferred vendor, “even though the City's use of Suntree's mark and Derrico's use of Suntree's mark, from an infringement standpoint, were identical. If the Court were to find that Derrico infringed on Suntree's trademark by listing it as a proposed vendor in the bid form, such a holding, taken to its logical conclusion, would result in everyone involved in the bid process-- both government entities and contractors--having to get permission from every vendor before listing it as a preferred or proposed vendor to avoid infringing on the vendor's trademark.” (This is a little extreme—if we accept the “intent not to use” theory then not everyone in this chain is infringing, but plaintiff’s claim certainly does seem like alleging that a Pepsi-serving restaurant infringed Coke’s trademark when a customer asked for Coke and was explicitly offered Pepsi instead.)

Confusion can be initial interest, point of sale, or post-sale. Suntree argued that the city was confused about the source of the baffle boxes at the point of sale, when the city accepted Derrico’s bid. But that wasn’t when the baffle boxes were sold. The agreement unambiguously gave Derrico the right to request an equal substitution for any of the proposed products in the bid.

So, any confusion would have to be initial interest confusion, and the court pointed out that Suntree’s confusion arguments sounded like a “bait and switch” claim, which is another way of describing initial interest confusion. The Eleventh Circuit hasn’t explicitly addressed IIC, but has suggested that it’s not sufficient when any confusion is remedied before sale. (Citing N. Am. Med. Corp. v. Axiom Worldwide, Inc., 522 F.3d 1211, 1224 n. 10 (11th Cir.2008) (stating that if "it will be clear to the consumer that there is no relationship between the defendant and the competitor" prior to a sale, then it is not likely to cause the type of confusion actionable under the Lanham Act) and Vital Pharm., Inc. v. Am. Body Bldg. Prods., LLC, 511 F.Supp.2d 1303, 1318 (S.D.Fla.2007) ("The Eleventh Circuit has not embraced [initial interest confusion], and I find it unpersuasive. When the bottom line is sales of a particular product, initial confusion prior to and concluding before the point of purchase does not seem dispositive in a likelihood-of-confusion analysis.").)

But it didn’t matter: assuming IIC was a valid theory, Suntree didn’t show it. The court noted that some of the traditional factors in the multifactor test didn’t work well in this case because it was a nominative fair use case, where defendants were using Suntree’s mark to identify Suntree’s product. Moreover, the strength of Suntree’s mark was “the very reason that its use is not confusing--Suntree is so well known in the industry that the City knew exactly what Derrico was referring to when it used Suntree's name.” This is not a case in which the parties’ marks are so similar that the consumer would initially become interested in EcoSense because it mistakenly thought EcoSense’s product was made by Suntree; the parties’ marks could not be confused.

Derrico’s use was nominative, which is not confusing (the court here cited both the Ninth and Third Circuits, which have different tests, because the doctrinal debris is not important in a case like this one). Suntree argued that Derrico wasn’t truthful because it proposed to use Suntree’s product and that it should have obtained preapproval to use EcoSense boxes instead rather than propose Suntree and later request an “equal” substitution. The court found that this argument was “irrelevant” to infringement, which focuses on confusion, and further found that it was “infeasible, and likely impossible, to obtain such pre-approval.” Aside from the practical difficulties (it would be pointless for a contractor who hasn’t won the bid yet to spend that kind of time and money), the project documents themselves said that “equal” approval wouldn’t be considered by the project engineer until the project agreement became effective.

Even accepting Suntree’s preplanned substitution theory, Derrico’s intent was not to confuse the city into thinking the parties’ products were related. And there was no evidence that Derrico’s use of Suntree’s marks “suggested affiliation, sponsorship, or endorsement by Suntree.” Suntree didn’t even allege that the city ever thought that the parties’ products were associated. The court also thought the planned substitution theory was irrelevant because the City, not the defendants, controlled whether substitution would be allowed. “[I]t does not matter what Derrico and Defendants did or did not plan, because they had no power to carry out that plan. Moreover, any plan that may have existed did not make it likely the City would believe that Suntree's and EcoSense's products were affiliated. On the contrary, the ‘or equal’ substitution process made it unmistakably clear that Suntree's and EcoSense's products were in no way related.”

The court rejected this attempt to stretch the definition of confusion “to include a contractor agreeing to use a more expensive product for a cheaper price and then convincing the fully-informed and sophisticated consumer to use a cheaper but technically equivalent product; this is not actionable confusion under the Lanham Act, it is merely a competitive business practice.” Unfortunately, it cited one of my least favorite cases, Norton Tire Co. v. Tire Kingdom Co., 858 F.2d 1533 (11th Cir.1988), which essentially approved bait-and-switch advertising under conditions where the customers had substantially less experience, control, and stake in their decisions, such that sunk costs of traveling to the defendant’s store instead of the plaintiff’s really did make customers vulnerable to being harmed by bait-and-switch. But, as the court pointed out here, the city knew exactly what it was getting, and held the power to refuse EcoSense boxes.

Without direct infringement by Derrico, there was no contributory infringement. Derrico’s bid was also not false advertising because it wasn’t an ad or promotion under the Lanham Act: Derrico isn’t in competition with Suntree, and the bid wasn’t sufficiently distributed to constitute commercial advertising or promotion.

Moving on to direct infringement by the maintenance presentation and the product brochure, this also failed. Even assuming that defendants falsely designated the origin of Suntree’s baffle boxes as EcoSense’s, there was no evidence of likely confusion or harm.

Consistent with Barton Beebe’s findings that intent is a huge driver of outcomes, the court began by finding that it was clear that defendants didn’t intend to pass off Suntree’s product as EcoSense’s (and the only other factor it discussed at all was actual confusion). The presentation was produced at the request of cities that already had baffle boxes in place, and defendants never expressly claimed that all the boxes pictured in the presentation were EcoSense boxes. (There’s a step missing here—shouldn’t Suntree also have had to prove that its boxes had secondary meaning? Under Dastar, using the picture might constitute false advertising if the boxes were materially different, but is there still a cause of action for using a picture of someone else’s product where the product itself lacks trade dress protection?) The pictures of Suntree’s product were in the presentation for good reasons unrelated to Suntree’s mark, and the purpose of putting the presentation on EcoSense’s website was not to “showcase” the products but to show potential customers that EcoSense would provide appropriate training and support for its products.

The sparse record evidence about that product brochure indicated that the use was a mistake rather than an intentional misappropriation of goodwill. The picture of Suntree’s baffle box was put in by a clerical staff member who was unaware that it was a Suntree product, and defendants destroyed all the other copies as soon as they became aware of the issue.

Suntree had no evidence of actual confusion, only the deposition testimony of a city project manager with minimal involvement in this project who saw the presentation for the first time at her deposition and, after being prompted by Suntree’s counsel, agreed that the presentation gave the impression that all of the photographs were of EcoSense's product. This was not evidence of actual customer confusion. The witness didn’t view the presentation under the normal circumstance of using it to learn how to clean baffle boxes, and she wasn’t involved in the choice of boxes. Even if she counted as a confused consumer, this was de minimis confusion.

With the brochure, Suntree didn’t even try to argue actual confusion. Its reverse passing off claim failed.

Even if Suntree had shown likely confusion, it failed to show harm. There was no evidence that any customers ever actually received the brochure or considered the maintenance presentation when deciding which baffle box to buy.

Were the presentation and brochure false advertising? Courts don’t treat the “commercial advertising or promotion” requirement consistently (and, by the way, state law is very likely to differ by not having such a requirement, not that plaintiffs’ pro forma recitations of state law claims are likely to point that out). At a minimum, the defendant has to be engaged in commercial speech, and then most circuits narrow that further.

The court adopted the popular test from Gordon & Breach Science Publishers S.A. v. American Institute of Physics, 859 F.Supp. 1521 (S.D.N.Y.1994). The first two factors were undisputed—this was commercial speech by a defendant in commercial competition with the plaintiff. But the last two favored defendants. The presentation was not made for the purposes of influencing consumers to buy defendants’ goods or services, and it was not sufficiently disseminated to the relevant purchasing public.

Surely the brochure was made for the purpose of influencing consumers? Yes, but Suntree failed to present any evidence relating to its dissemination—and then the court added in materiality: “due to the sophistication of the consumers, it is unlikely that a simple product brochure could influence them to purchase EcoSense's baffle boxes.”

Even assuming that the presentation and brochure were commercial advertising or promotion, they weren’t false advertising. Because they didn’t mention Suntree’s product, the only allegedly false statement was the juxtaposition of a picture of Suntree’s product to statements about EcoSense’s products, which was ambiguous and thus not literally false. (Hunh? What is the ambiguity? With the presentation, I can absolutely imagine different messages that consumers might take away—“this is how to maintain baffle boxes” is one, and “all the baffle boxes in this presentation come from EcoSense” is another, though I can’t imagine it’s top of mind. But unless the brochure is very unusual, a picture of Suntree’s product combined with statements about EcoSense products would necessarily imply that the statements referred to the thing in the picture. What’s really going on here is that the brochure is just not driving the case, and the court is kicking plaintiff for its overall anticompetitive lawsuit any way that it can.)

Without evidence of consumer reaction, which Suntree didn’t have (except for that one deponent), it couldn’t show that the presentation was misleading.

Suntree also failed to establish materiality. Neither the representations in the maintenance presentation nor those in the brochure were likely to influence purchasing decisions. “Bids for projects are mainly determined by the price of the overall bid, and decisions about which specific products will be used on these types of projects are made by engineers who look at product specifications, not advertisements.”

There was also no harm shown. EcoSense destroyed all the brochures except for the one in evidence, and, with the presentation off its website, it was likely that the only customers who’d see it would already have bought the product and clearly understand that EcoSense isn’t associated with Suntree.

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